SEC to mark Lanka as safe place to invest

Vishmi Wijeratne

The Securities Exchange Commission (SEC) with the issuing of their consultation Paper LKAS, 24 hopes to reach the 30th position by 2015 in Investor Protection in international business rankings. Director of Supervision of the SEC, Surana Fernando said that to reach this target following the regulations proposed in Related Party Transactions (RPT) will be important.

"Sri Lanka has moved up the ladder with concern to the international business standards, we have moved from the 70th place up to the 46th place and we hope to move up constantly and reach our target by 2015," she said.

Fernando said that the new consultation paper will ensure the protection of investors as the SEC wants to mark Sri Lanka as a safe place to invest on the map of business. She said that the decision was made due to several reasons that had come to their attention.

"Sometimes loans are given interest free and we want to ensure that sales and purchase of property of assets are done properly at times we have encountered that purchases are made at unnecessarily high prices," she said.

She also said that through this the SEC can carve out subsidiary companies and will be able to mar companies that gain its own personal gains through transactions. "We also want to increase the amount of listed companies in the capital market as it has come to our attention that foreigners are reluctant to invest in companies unless they are listed and the country is focusing on gaining more foreign investment," she said.

Though the consultation paper had been issued, it is not yet finalized, thus the SEC invites its listed companies to give their responses before November 30. Meanwhile, Chairman, Statutory Accounting Standards Committee, Nishan Fernando who was invited to educate the gathering about the new consultation paper, explained about what was necessary to gain the approval of the SEC in concern of the RPT, a few of them explained. "The issuing of this consultation paper is timely and needed, while this is already being carried out in countries like Malaysia and Singapore. With this consultation paper, the country has gone one step ahead by requiring the audit committee approval," he said.

He also said the directors of these companies need to have access to knowledge and expertise, also a director who has a material or personal interest must not be present or must not vote on the matter. If the RPT is equal to 20 % equity or 10 % of the total assets, it should be approved by the independent share holders. "Also approval must be gained if 10 % of equity or 5 % of the total assets, are acquired from or disposed to a substantial asset where value or consideration exceeds," he said.

Acquisitions and disposal of substantial assets too must gain approval. If the parent company comes together with a 100 % owned company or the transaction is made between two 100 % owned companies, an approval as mentioned above is not needed. He also said that immediate market disclosures must be made if the RPT exceeds 10 % of the equity or 5 % of total assets." Disclosures must also be made if the aggregation exceeds at the trigger point which is the latest transaction and all the full transactions," he said.